Recap

Posted by Ray on July 7, 2010 under Economy, Main | Be the First to Comment

Today was interesting to say the least, a massive rally on the back of no real news, I guess stress tests that really don’t stress banks balance sheets were the primary driver along with a technical bounce, but other than that all the other news was negative. Let’s review the bullish news that moves the markets 3%. Dallas Fed President Fisher calls out Congress and the President by saying they are inhibiting growth by creating confusion, no surprise there. Delinquencies on homes are stabilizing at extremely high levels, CNBC.com. Reis Inc. released a report showing that retail shopping center vacancies are rivaling all-time highs at 10.9% and rents are dropping, they should recovery by 2016, somehow that must be bullish. Lindsay Lohan is going to jail, I guess, for 90 days, now that really is bullish for whoever makes the drugs to sober people up.

I guess on the heels of all that bullish news it is little wonder that the market rallied so hard today. The only other piece of news that would have sent us to 11,000 for sure is if we declared war on Iran, based on this track record.  We blew through several layers of resistance on the SPY, which I am short and yes today did hurt, thank you for asking, and we could reach as high as $107.12 on the SPY, but overall it is still in a bearish trend, sorry. The volume was nothing to write home about today either and, frankly, yesterday’s mammoth reversal speaks volumes about the condition of this market, it is structurally unsound. However, we have some pretty big news coming up Thursday morning, retail sales and initial claims data will dominate the headlines.

First, if you watched CNBC this morning and caught El-Erain from PIMCO he said something you might have heard before. He said; “Unemployment is no longer a lagging indicator, but a leading indicator.” Any idea where you would have read that? I have been saying that for months now and many have said some pretty nasty things to me about making that claim. What El-Erain and PIMCO have figured out and the people who have no clue that a “V” shaped recovery does not exist have not figured out is that in a post credit collapse world unemployment is not a symptom of the cancer, but part of the actual cancer itself. If the credit collapse occurred because people could not pay their bills it would stand to reason that the more people who are unemployed the worse the problem will get. Perhaps this is why mortgage modifications are failing and defaults are picking up on credit products, depending on how a default is actually measured nowadays. It is just nice to have a high profile person repeat what you have been saying even though he has no clue who I am.

As for the initial claims tomorrow, my guess is that they will be ugly, again, as in +450,000, but less than the 472,000 from the week before because of the July 4^th holiday. Employers tend not to fire people before the holidays, but they will be elevated in my opinion. If, for some reason, initial claims are above 470,000 that will be horrible news and my guess is that will merit a reversal of fortunes in the markets. It is just amazing that we are coming up on 3 years into this thing and we are still seeing initial claims coming in at well over 400K a week. I know the President likes to make the claim that when he came into office over 750,000 people were filing for initial claims a week, but that was for only a few weeks during the peak of the crisis and, frankly, the fact that we have stabilized at 450K a week is nothing to really brag about, sorry.

To make matters worse the emergency extension of unemployment benefits were not passed before Congress went home for the holiday. That left almost 2M people without unemployment benefits and, in my opinion, that will have an impact on retail sales. How much of an impact? I do not know, but more than most people think. The other major thing people have to remember about retail sales is that many retailers closed a ton of underperforming stores so you are looking at retail sales numbers from the top performing stores they have to offer. No longer can we say that these figures include the dogs of the industry which means the figures you see can actually be much weaker, or stronger, than they initially appear. Regardless, credit is still contracting, unemployment is still sky high and that means retail sales are probably not going to be as strong as most people think, but analysts knew this and started heavily revising estimates lower. Not to mention that retailers have zero pricing power so even if sales are good their margins are going to be miniscule.

There is little to be bullish about out there as all the data has been bad and should not be read any differently than being bad. The ISM was bad, the employment report was bad, the housing data is horrible, the political picture is uncertain and the charts are certainly bearish, just look at the RUT. I am not saying don’t own stocks, but be careful what you own, strong balance sheets and dividends are key. Anyone outright bullish on this market is either selling you a fund or is simply out of their mind. Patience is key and there is no need to jump into any stock for any reason as we are in for a bumpy ride. I don’t even think earnings season will do much for us, sure 2Q10 earnings will be good, but the outlook will be not so bullish.

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The Dollar’s Slide Leading the Turnaround in Stocks

Posted by Ray on August 19, 2009 under Main | Be the First to Comment

Who says the commoditization of the equity markets isn’t a good thing? This morning the dollar started out fairly strong which led to lower equity prices, rightfully so given the over extension of the equity markets, but that turned in the late morning. The dollar began to sell off, perhaps because of Buffet’s op-ed piece published this morning.

Regardless, it is clear that the markets are merely responding to a lower value for the dollar versus any real economic or other data points. Of course, this is not being talked about by the media or others who merely trumpet this as a continuation of the ‘new bull market’, with bull being the operative word. While the dollar is weaker by about .50% today I expect that there will continue to be strength in the near future as the markets realize that things are not as rosy as they think.

However, the crude inventory report is being perceived as bullish with rather large draw downs, but I believe those draw downs need to be put into perspective. Demand has been so weak in the US that the import of oil has trailed down recently and without that replenishment of more oil it was inevitable that the draw down was going to happen eventually. Because I believe it is relatively weaker demand and imports have been reduced I am not seeing this as a long-term bull more in crude.

With the report being framed as bullish it caused the dollar to lose strength which has the trickledown effect of higher equity and commodity prices. Outside of this resilient rally most trends do not go in a straight line which is why I expected the dollar to fluctuate. Because of this volatility I have not added to my gold or silver holdings as I believe we will get lower prices in the near future.

While I am a short-term bull on the dollar that does not mean I think it is a long-term trend. In fact, I believe the PIMCO report and Buffet’s concerns are very valid and why I am a long-term bear on the dollar. Regardless of my view on the dollar it is still the place to run in the event of catastrophe which I expect to see in the near future by some ‘black swan’ event.

As I have said many times, enjoy the rally, but the buying power of the dollar has not really increased as it is a mere tradeoff between the currency and the equity markets. In a nutshell, it is more of an inflationary event, minus the actual inflation as of right now, instead of a real economic event. This does not change my prediction of a sharp, painful decline in the near future, September to December area, where we could see spectacular movements in the indices.

Please review the 1 minute chart below comparing the S&P 500 to the DXY. There is a clear connection between the dollar’s decline and higher equity price movements, but most people will ignore it and continue on with framing everything as a recovery or green shoots. As I have said before, this much liquidity, printed by the Fed, in the market can make spectacular things happen. Either way, I am very happy with being out of equities as we are still heading lower.

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Pot Shots

Posted by Ray on July 2, 2009 under Main | Be the First to Comment

Are we taking pot shots at the pundits, sure we are. However let’s get one thing straight, we never said there was a recovery and predicted lower market averages and worse economic data. That is the difference and for God’s sake if you make a crazy claim, like the good times are back, then back it up with more than 2 or 3 data points.

Plus, rising equity prices, and this may be a shock to some, are not indicative of the improving economic condition like some say it is. It could be:

1. Technical, like we see now;
2. Weaker dollar;
3. Mild increase in data; or
4. Drastically oversold conditions that is correcting itself over the short-term.

Among other reasons of course, but those are some of the majors. Hey, we invest and love America and want a recovery, we just do not see it, kind of like many other forecasters and economists.

Are you going to call Bill Gross a digital dickweek or other nasty things because he is peeing on your parade? Here is what he said on CNBC.com:

Economy to Stay Weak ‘For a Number of Years’: Gross

“Much like we saw with the Depression, attitudes change, and so consumers and investors will now become conservative savers as opposed to spenders,” Gross said in a live interview. “Spending as driven by asset appreciation in terms of houses … that game stops, that game has stopped and we must now move in another direction.”

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